My favourite place when I visited Madrid was El Lateral (Plaza de Santa Ana and various branches across the city, http://www.lateral.com/). Technically more of a tapas bar however the service is restaurant-standard and the food is terrific. They serve classic tapas dishes with a creative, modern twist.

I’ve also heard good things about El Botin (Cuchilleros 17, http://www.botin.es). This 18th-century restaurant has a number of claims to fame – it’s cited in Guinness Book of Records as Europe’s oldest restaurant and was favoured by Hemingway – which can make it a bit touristy (watch out for performing musical groups in medieval garb!) but the food is said to be spectacular and focuses on typical Castilian dishes (with cochinillo, roast suckling pig, as a speciality).